Shortage of raw materials affects operational processes. What helps?

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The shortage of raw materials continues to hold the industry in its grip and is now also having a massive impact on operational processes. Almost no company can escape the situation. And the situation remains tense. According to surveys, the bottlenecks will probably keep us busy until at least the end of 2022. Here we present how this is affecting operational processes, how companies are reacting to it, and what we think you can do now.

 

The tense situation on the raw materials market is keeping companies  across all industry boundaries busy. The packaging industry is also affected. The situation remains particularly tense in the plastics sector. Here, 95 percent of companies report that the shortage of raw materials is now also having a massive impact on operational processes.

The German Association of Materials Management, Purchasing and Logistics (BME) expects the shortages to continue until the end of 2022. The reasons for the situation are said to be an unexpected increase in demand for the Corona lockdowns, an unusually high number of cases of force majeure, and delivery difficulties due to problems in logistics.

 

Operational processes in the red zone

The raw material situation is having an impact and is also affecting operational processes. The consequences:

 

Declining efficiency

  • The effort required for planning and negotiations has increased significantly. According to a survey by the DIHK (Association of German Chambers of Industry and Commerce), 65 percent of companies are affected.
  • The increased effort draws resources. More employees on the job and an increased time commitment lead to increased costs.
  • In order to absorb costs and to be able to improve staffing levels in the purchasing department, some companies are responding in the production area by cutting back on overtime or short-time working.

 

Calculation problems

  • Most companies only have a standard cost calculation. In this, production stops, changes or unforeseen problems cannot be planned for. Necessary calculations can therefore not be carried out. As a result, the costs for production are often only known when production has already been completed. As a rule, the calculation in advance is then wastepaper and the actual costs are significantly higher. The reasons for the problem lie in the lack of flexibility of the costing tools and the lack of an interface for feedback between production and other areas of the company, especially costing. In addition, the agility in the company is often too low to be able to react well to problems.

 

Deteriorated customer relationship

  • The DIHK survey also shows that 67 percent of companies have to pass on their increased costs to customers. This can have a massive impact on the relationship. In the worst case, the customer looks for a new supplier.

 

This is how companies react

To minimize the damage, companies are responding with a variety of measures born of necessity. These include in particular:

  • The search for additional suppliers.
  • The increase in stock where possible.
  • More flexible production planning depending on raw material availability through the use of shift models or production intervals.
  • A more costly procurement via alternative sources such as online portals, brokers or on the spot market.
  • An internal crisis and risk management system that follows close-meshed, in-house reporting with regard to raw material availability and price developments. Production is then adjusted accordingly.
  • In some cases, the company also tries to sell customers only limited quantities in order to be able to distribute the available goods among as many customers as possible.
  • Alternatively, attempts are made to make projects more flexible in terms of scheduling or to postpone them.

 

Our recommendation

Meet the situation with short-term and long-term measures.

 

Suppliers

In the short term, communication with suppliers is most important. Maintain regular contact to identify warning indicators as early as possible. Conduct continuous negotiations on price and delivery dates. Conclude long-term supply contracts whenever possible. And pay invoices quickly.

 

Effiziency and recycling

In the long term, you should focus on the circular economy, the expansion of recycling measures and more resource efficiency. In this way, you can reduce dependence on current sources of raw materials. This path brings many opportunities, but also requires increased support for research and development with regard to new materials, products and technologies.

 

Regionality, warehouse, locations

Another measure is the increased development of domestic raw materials and/or the establishment of raw material storage facilities in Germany and the EU.

Companies could also produce or stock more components or preliminary products in order to reduce their dependence on foreign, logistics-intensive suppliers and cut transport costs.

 

Reduction of raw material complexity

We could also support you in optimizing your product portfolio with the aim of reducing the complexity of raw material requirements.

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    Karsten Beutner
    +49 30 / 367 524-25
    beutner@bp-consultants.de